Kevin Ryan has become very wealthy by being in the right place at the right time – including the online advertising network DoubleClick, which he joined as the twelfth employee and eventually headed as CEO (it was later acquired twice) – as well as co-founding numerous companies , including software company MongoDB, which is currently valued at around $ 30 billion as a publicly traded company. (Ryan still owns “at least half of my shares” in the company, he says.)
The other day we spoke to Ryan about his biggest and newest bet on health technology. As we reported earlier, his investment firm AlleyCorp is stalling $ 100 million mostly of Ryan’s own capital into creating and funding outfits in space – on top of the roughly 20 related bets the outfit has already made. We wondered how he got so involved when his previous projects had almost nothing to do with each other. You can hear this conversation here or view excerpts below.
TC: To someone who is not careful, your extreme focus on health technology comes as a surprise. What sparked your initial interest?
KR: One of the things I always do from the AlleyCorp perspective is to think about what 5 to 10 year trends we want to bet on. Some areas can be overcrowded and you think there is no chance, everything is already taken care of. And sometimes you think there is a great opportunity. And so, two or three years ago, I felt like there were huge opportunities in both New York and healthcare in general because there are so many aspects of the healthcare system that are just not working well. It’s incredibly expensive, the electronic records aren’t great, it’s super inefficient. Most of us are very frustrated with this whole health system, which means opportunity.
TC: You mostly oversee your own capital here. Why not borrow billions of dollars to invest, which you, as a proven entrepreneur and investor, could probably do in this current market?
KR: Partly because the area of the ecosystem in which I like to play and in which I feel most comfortable and know best is still in its early stages. So, do I want to invest in a $ 3 billion company and hope it hits $ 10 billion? I don’t really play there. I want to be in the early stages where it’s riskiest and that just requires less capital. By the way, we are not tied up with capital, otherwise we would not bring all these other things to the market [including incubating a number companies inside AlleyCorp like Nomad Health, which raised a $63 million round earlier this year, and Pearl Health, which closed an $18 million round in September].
When we start a new business, we have to bring in $ 1.5 million to $ 2 million to get a business off the ground and then we raise money [from] outside and when we have to raise a lot of money, we collect a lot of money and keep investing, we try to limit our investment in a single company to around $ 10 million. But no, there are many options. And here I want to play.
TC: And this model works even in a world where we are now seeing $ 100 million seed rounds?
KR: The changed environment only helps us. Take pearl health. We have invested $ 1.5 million in this company and are starting with a large equity position. It depends on the company, but we’ll probably have 30-60% somewhere between our partners because the management team has a lot and sometimes there are co-founders on it, so it’s a great position.
Then a company like Andreessen Horowitz comes with a high valuation, a big step up – and we put another $ 3 million or $ 4 million into that round – but we decide who comes in. And by the way, if there is a round at, I don’t know, $ 400 million, then we’re probably going to stop investing. That’s what happens to seed capital. Other big buys will come, we will be watered down, and that’s not a problem. Our money is most effective when we think we can make 10 times our money.
TC: So you are not interested in participating in the later stages.
KR: No. I’ve invested every now and then. We just put a ton of money into Nomad, and Nomad is valued at around $ 250 million. But I think it’s a $ 2 billion company that can be started, so I still feel good about it [our bigger investment], but it’s probably the last round we’ll invest in. There are other people out there who play the role of investing money who think they will get 2 or 3 times the return on it, which is fantastic for their fund. You are much later; they’ll just be inside [a company] for five years. We want to put our money in, be in it for nine years and earn 100 times our money,
TC: Many of your contemporaries are beginning to step out of the venture capital industry, or at least out of their companies. I was wondering how you feel about it. Do you have a right hand at AlleyCorp? What if you decide to step down at some point?
KR: First of all, I don’t think that’s going to happen anytime soon. But you know it’s Brenton [Fargnoli], Conduct health efforts; it’s wendy [Tsu] who works in the non-medical field. And then I guess that in a year we will have two or three more partners and that I would be practically the managing partner of the company. But I’m fine for another 10 years.